Australia / Coronavirus Insights
State of Play: Social Distancing Effects on State Economies

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by IBISWorld
Apr 23 2020

The Australian economy has been hit hard by COVID-19 and the social distancing regulations implemented to contain it. According to RBA modelling, national output is expected to fall by 10% over the first half of 2020, and the number of total hours worked is expected to fall by 20%. Additionally, the unemployment rate is anticipated to rise from 5.2% to about 10% by June. However, economic disruption has not been even across the country, with a more damaging impact on states that rely on service-based industries such as retail and tourism. In contrast, state economies that generate a higher share of revenue through construction and mining will likely be better placed to weather the recession.

Victoria

  • The Retail and Wholesale divisions are the largest revenue generators in Victoria, accounting for 14.1% and 18.2% of Gross State Product (GSP), respectively. Retail accounted for almost 12.0% of employment in 2018-19, while Wholesale trade accounted for 5.5%. The Retail and Wholesale divisions have been hit hardest by social distancing, with a complete curtailment of non-essential trade.
  • Victoria’s reliance on foreign students and visitors for education and tourism services will likely hinder its economic recovery relative to other states.
  • Manufacturing in Victoria accounted for close to 13.0% of GSP and 8.7% of employment in 2018-19. While social distancing has not directly curtailed manufacturing activity, it has led to a range of disruptions in upstream supply and downstream demand. An inability to procure production inputs and reduced demand for manufactured goods from the Wholesale division are expected to hinder manufacturers in Victoria.
  • Modelling from the Victorian Department of Treasury and Finance suggests that over 270,000 Victorian jobs will be lost, with GSP declining by about 14% in the June and September quarters.

New South Wales

  • Social distancing has had a profound influence on this state through significant limitations on the Retail and Wholesale divisions. In 2018-19, Retail accounted for close to 13.3% of GSP and 11.3% of employment in New South Wales. Wholesale accounted for almost 17.5% of GSP and 5.5% of employment.
  • Construction, which has not been significantly curtailed by social distancing regulations, will likely support the state’s economy. The Construction division accounted for close to 13.5% of GSP and 9.7% of employment in New South Wales in 2018-19.
  • This state will likely be supported by activity in the Professional Services division, which is largely continuing through working from home arrangements.
  • As at April 24th, New South Wales has exhibited the highest number of COVID-19 infections, at 2,976. The second-highest number of infections is in Queensland, at 1,026.

Queensland

  • Unlike New South Wales and Victoria, the Construction division accounts for the largest contributor to GSP in Queensland. Construction is expected to be less disrupted relative to other divisions in the economy, providing Queensland with an advantage over other states. The Construction division accounted for close to 13.2% of revenue and 10.6% of employment in Queensland in 2018-19.
  • Queensland generates a significant share of its GSP from resources and energy projects. The Mining division accounted for close to 11.3% of Queensland’s GSP in 2018-19. However, this division is a relatively low employer due to its high capital intensity, accounting for an estimated 2.0% of employment in Queensland in 2018-19.
  • Queensland is extremely reliant on tourism-related revenue, which has been completely curtailed due to the COVID-19 regulatory response. More than 26 million domestic and international overnight visitors come to Queensland each year. Tourism accounts for 9.1% of all people employed in Queensland, and accounts for 7.8% of GSP.

South Australia

  • South Australia relies heavily on the Retail and Wholesale divisions, which accounted for close to 32.4% of GSP and 17.2% of employment in 2018-19. Almost 8,500 retail businesses and 5,000 wholesale businesses operated in South Australia in 2017-18.
  • Manufacturing is also a significant contributor to the state, accounting for close to 12.9% of GSP and 9.6% of employment in 2018-19. Over 6,200 manufacturing businesses are based in South Australia.
  • The unemployment rate in South Australia is the highest in the nation, and jumped from 5.8% in February to 6.2% in March. This represents a loss of over 44,000 jobs during this period.

Western Australia

  • Western Australia’s economy is dominated by the Mining division. Mining in remote locations provides intrinsic social distancing between workers and the broader population, allowing mining firms to operate with less disruption. Within mining communities, social distancing measures include spaced out seating in chartered planes and buses, staggered working rosters, and frequent disinfecting of shared mining village accommodation spaces.
  • The largest sources of employment in Western Australia are the Construction, Retail, and Health Care divisions.
  • Prior to the COVID-19 outbreak, Western Australia was expected to benefit from growth in mining investment, which has been in decline since 2012-13. Delays in investment decisions and slower progress on projects under construction will result in slower mining investment in 2019-20 than previously expected.

Tasmania

  • The Tasmanian economy heavily relies on international and interstate tourism, which directly and indirectly contributes almost $3.2 billion, or 10.3% of GSP. Tasmania has the highest reliance on tourism of any state or territory in Australia. Tourism supports 42,800 jobs in Tasmania, equivalent to 17.2% of total employment.
  • Strict border restrictions preventing travel to Tasmania have significantly affected tourism businesses. Tasmania will also likely suffer for a longer period as the national economy re-opens, as interstate tourism is expected to remain subdued for an extended period.

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